Benchmark Study 080106

OVERVIEW

Enhanced Customer Experience:
A Benchmark Study

Authors
Kathleen Conroy
Matt Maddox
Lindsay Parker

Editor
Mohsen Moazami

Prepared by Cisco Systems, Inc.
Internet Business Solutions Group (IBSG)

Cisco Systems, Inc., IBSG Copyright © 2006 Cisco Systems, Inc. All rights reserved.

OVERVIEW 1

Enhanced Customer Experience:
A Benchmark Study

Having conquered their initial fears about the security of Internet commerce, consumers today
are embracing the convenience and selection that online shopping provides. Buyers are logging
on to select gifts for relatives, pay bills, manage their finances, check their children’s report cards,
make contributions, book travel, and even date.
According to Forrester, consumer e-commerce in the U.S. is forecast to reach US$329 billion by
2010—increasing to 13 percent of all retail sales.1 It also forecasts that by 2010, almost half of all
U.S. households will shop online, up from 39 percent in 2005. And by 2008, 75 percent of U.S.
Internet users will access the Internet over broadband connections.2
But what do these trends mean to U.S. retailers? And how can companies capitalize on these
developments to grow not only their online sales but their in-store transactions as well?
To answer these questions, the Cisco Internet Business Solutions Group (IBSG) benchmarked
20 major U.S. retail Websites, and purchased items on each site to compare back-end processes
of these businesses. Included were the top 10 U.S. Web retailers (by revenue) in 2004, several of
the nation’s leading big-box and discount retailers, along with half a dozen chief e-tailers.

A Customer Perspective
Taking a consumer’s point of view, each Website was evaluated from an “outside in” perspective
to measure the buyer’s experience throughout the entire shopping lifecycle. With more than
70 discrete attributes gauged in total, the assessment focused on fundamental issues, such as
ease of use, personalization, and content. It also rated elements such as the reliability of transac-
tions and the level of interaction possible between the consumer and retailer and the consumer
and other shoppers.

Who’s Leading, Challenging, or Following?
For online consumers, some aspects of a company’s Website are non-negotiable, “must have”
characteristics. Known as foundational capabilities, these include ease of use, limited personal-
ization, some free content, and secure, reliable transactional processes.
Emerging capabilities are the more sophisticated aspects that take the user experience to a new
level, both in terms of convenience and satisfaction. Functionality related to enhanced personal-
ization, user-driven content, and interaction with the site and other shoppers are among the
leading capabilities provided by Web retailers today.

1
Forrester Research, “U.S. E-Commerce: 2005 to 2010,” September 2005
2
Forrester Research, “The State of Consumers and Technology: Benchmark 2005,” July 2005


OVERVIEW 2

As indicated in the following chart, the “Leaders” in both the foundational and emerging capa-
bilities are those that provide a compelling online experience while also performing well in
back-office processes such as shipping, returns processing, and so on. Amazon.com, Cabela’s,
Best Buy, REI, and Sears are delivering quality in both areas. These companies integrate their
on- and offline channels by providing rich, dynamic information about their stores online,
which gives users visibility into store inventory and allows them to order online and pick up
or return items to store locations.

FIGURE 1

Relative Ranking Across All Capabilities
..................................................................................................................................
60%

50%
Amazon
Cabela’s

Wal-Mart
Emerging Capabilities

40%
Office Depot Home Depot
REI
Dell Best Buy

30% Sears
QVC
JCPenney

20% Newegg
Target
Staples
Netflix
10% Costco
Sony Style CDW
HP
Blue Nile

0%
40% 50% 60% 70% 80%
Source: Cisco IBSG, 2006 Foundational Capabilities

Relative Ranking Across All Capabilities
The “Challengers” are retailers that excel at the emerging capabilities and perform reasonably
well in foundational capabilities. Companies such as Dell, Wal-Mart, Home Depot, Office Depot,
and QVC integrate customer service clearly into their overall site design, provide product- and
price-comparison tools, use video and rich media, and offer exceptional interactive functionality
(such as Click-to-Chat).
Businesses that are strong but not exceptional in the foundational or emerging capabilities are
“Followers.” Since channel integration is an important consideration in both the foundational
and emerging capabilities, most of the e-tailers without stores fall into this category (Blue Nile
and Netflix), but so do several of the 2004 top 10 U.S. Web retailers (Staples and HPShopping).


OVERVIEW 3

Top Retailers With “Must Have” Capabilities
Some of the companies benchmarked clearly excelled in one category or the other (foundational
or emerging). As noted, foundational capabilities skew toward ease of use and transactional
functions, but also include limited functionality in personalization, free content, and interaction.
The leaders in overall foundational capabilities include an interesting mix of midsized retailers
as well as one notable e-tailer. (See Figure 2.)
FIGURE 2

Top-Ranking Retailers in “Foundational Capabilities”
.................................................................................................................................

Top Retailer Rankings Foundational Capabilities

1 Strong search; links to stores and catalog; deep
product information

2 Strongest transactional player; easy to buy and best
end-to-end experience

3 Navigation and search are strong; extensive use of
suggested items; easy, one-screen checkout

4 Balanced player with rich member-oriented content;
ability to order online and pick up in store a plus

5 Solid use of gift registries, wish lists, and integration
with the store, particularly in-store pickup

Source: Cisco IBSG, 2006

These e-commerce experts are moving beyond ease of use to create a much more compelling
customer experience online, offering extensive company and third-party content to inform the
purchase decision and enhance the shopping experience.
When looking at foundational capabilities overall, we also find:
• Every company is cross-selling and up-selling by proactively suggesting related items.
• Amazon.com, JCPenney, Target, and Wal-Mart allow users to search for gifts by age,
gender, or event.
• Cabela’s takes the search function one step further and allows users to browse by other
user-defined criteria (such as hobby).
• 81 percent actively solicit customer feedback at multiple points throughout the site.
• 57 percent have gift registries or wish lists (Amazon.com, Cabela’s, and Wal-Mart scored
the highest).


OVERVIEW 4

• 57 percent allow users to order online and pick up at the store (Best Buy, Office Depot, REI,
Sears, and Amazon.com scored the maximum points).

Leading the Way With Online Extras
Surprisingly, in the category of emerging capabilities, only one widely known Web innovator—
Amazon.com—ranked in the top five, while more traditional brick-and-mortar retailers
closely followed. (See Figure 3.)
By moving beyond transactions to interactions—engaging more frequently and in a more dynamic
manner with their customers—these retailers are setting the standard in their respective segments.
To keep up, competitors will need to follow suit and provide numerous ways for shoppers to
interact with their sites, from customizing items to providing feedback to the corporation.
When looking at the emerging capabilities in personalization and content, we noted the following:
• 67 percent allow consumers to shop all or part of the site in at least two languages. Best Buy,
HPShopping, Home Depot, and Office Depot score highest.
• 67 percent offer suggested services (such as product installation), with Amazon.com, Best Buy,
JCPenney, HPShopping, Newegg, Sears, Sony Style, and Wal-Mart topping the list.
• 52 percent use online video to help sell products or services, or to enrich the user’s experience.
Cabela’s, Dell, and QVC score highly but are closely followed by Home Depot, Netflix, Office
Depot, Sears, Target, and Wal-Mart.

FIGURE 3

Top-Ranking Retailers in “Emerging Capabilities”
...................................................................................................................................

Top Retailer Rankings Emerging Capabilities

1 Personalization tools allow customers to define
shopping experience

2 Extensive content, including video and seamless
links to third-party content

3 Compare prices online; check store inventory and
ALWAYS LOW PRICES. item availability; online video/music

4 Compare prices online, shop in your language,
Click-to-Chat, seamless integration with third-party
offerings

5 Shop in your language, compare prices online,
user-driven product customization and virtualization

Source: Cisco IBSG, 2006


OVERVIEW 5

• 48 percent allow shoppers to compare prices online.
• 48 percent provide some level of visibility into store inventory availability.
Another emerging trend is how these companies are facilitating a customer community by
enabling users to interact with other “community members” who frequent the same site. They’re
accomplishing this by offering gift registries and “send to a friend” options, by posting reviews
of products and services offered on the site, and through other creative ideas.
While not all brands or business models may consider this social networking essential to their
site, traditional retailers are clearly beginning to tap into this online phenomenon to drive
frequency of visits and customer reach:
• 48 percent provide user-driven product customization or virtualization, with JCPenney, Home
Depot, and Sears providing the most robust functionality.
• 48 percent publish a calendar of events for in-store activities.
• 43 percent allow customers to shop with a friend or e-mail product information from the site
directly to a friend.
• 33 percent allow users to post and view customer reviews.
• 28 percent provide the option to Click-to-Chat or Click-to-Talk.

Who Will Win in the Future?
Growing the online channel successfully and rapidly begins with the time-honored business prac-
tices of understanding the customer and differentiating the product or service. Clearly, online
retailers must provide ease of use (site design, navigation, search) and bullet-proof transaction
capabilities to support the shipping, billing, and customer service/returns requirements.
The rich content some Web retailers provide today—ranging from deep product information and
guided selling tools to video demonstrations of products in use—will become commonplace
tomorrow. In the future, more companies will combine rich content with enhanced interaction
capabilities to encourage visitors to visit their sites more frequently, and to linger longer
while there.
To be successful, retail executives responsible for growing sales—whether it’s through the online
channel or through integration of the online channel with the stores—must do the following:
1. Keep a vigilant eye on what competitors are offering
2. Stay close to customers to understand their unique needs and preferences
3. Constantly look for better ways to improve their sites’ ease of use while also providing deeper,
richer multimedia content
4. Create meaningful ways for shoppers to interact with the company and each other when
on the site


OVERVIEW 6

With online sales growing five times faster than store sales, retail
executives must create a compelling online customer experience Companies Benchmarked

and continually explore innovative ways to use their sites to drive
sales to and through the stores via improved channel integration. Amazon.com Netflix
Best Buy Newegg
While foundational capabilities enabled many retailers to be Blue Nile Office Depot
successful on the Web initially, it will be the emerging capabili- Cabela's QVC
ties—content, interaction, and channel integration—that will CDW Sears

determine the top U.S. Web retailers by 2010. These will be the Costco Sony Style
Dell Staples
companies providing the best customer experience, both online
JCPenney Target
and in the store.
HPShopping REI
Home Depot Wal-Mart


OVERVIEW 7

APPENDIX

Hunting, Fishing, and Clicking
How Cabelas.com enhances the online customer experience

For retailers today, an “enhanced customer Engage customers with compelling content:
experience” is the Holy Grail. After focusing Cabelas.com clearly appeals to its core con-
on cutting costs, accelerating supply chains, stituents by providing hunting and fishing
and integrating back-office systems, retailers updates on a state-by-state basis, with links
have recognized that attracting and retaining to state Fish & Game Websites. Prior to pur-
customers is critical in a climate where gain- chasing, customers can access a library of
ing market share is the name of the game. product videos; compare product features,
There is no doubt providing a positive cus- functions and prices; and review field-test
tomer experience is the key to developing information, all which helps them feel more
loyalty and growing top-line sales, but how informed during the buying process.
can retailers enhance their customers’ online
Build and serve your customers’ communities:
experience? One retailer, Cabela’s, exemplifies
Cabela’s builds community among its customers
the four basic attributes of a truly pleasurable
by enabling them to submit reviews of products
online shopping experience:
they’ve purchased. In addition, Cabelas.com
Know your customer: Cabela’s proclaims itself to encourages interaction by hosting talk forums
be the world’s foremost outfitter for hunters and where customers share perspectives and insights
fishermen, and cabelas.com is attuned to fulfilling about their favorite hobbies. The site’s FAQ sec-
their needs. The Website’s Store Locator identifies tion solicits feedback to ensure the information
not only the street address of a location, but the provided meets the needs of customers.
GPS coordinates as well. Local hunting, fishing,
All of the above, plus strong multichannel inte-
and camping links are also provided, along with
gration with its brick-and-mortar stores, enable
a schedule of hunting and fishing classes and
Cabela’s to offer a shopping experience that
programs in the area.
exceeds customers’ expectations. From their
Cover the basics—flawlessly: Cabelas.com Cabela’s Club loyalty program to the consis-
understands the importance of getting the tent look and feel across their Website, stores,
foundational elements right. The site provides and catalog, Cabela’s is the leader in providing
multiple search options, making it easier for a seamless shopping experience for those who
customers to find just the right hunting and are passionate about hunting and fishing.
fishing gear. Buyers are apprised of each phase
of the shipping process, and when the product
arrives, it’s personally signed with a thank-you
from the person who packed it. Returns are
made simple with shipping labels and step-
by-step instructions provided as part of the
shipping materials.


OVERVIEW 8

A Retailer in Your Pocket? preference to have the article delivered to their home or
Multichannel retailing is a hot—but frequently elusive— reserved for in-store pick-up. In addition, the “Check and
topic among retailers today. JCPenney observes that cus- Reserve” option allows customers to check inventory at a
tomers who shop all their channels annually spend more local store and then hold the item until the end of the day
than four times the amount spent by customers who without purchasing it. Customers can use the phone, the
shop only one channel. But how can other retailers drive store, the catalog—and even text messaging—to purchase
their store and catalog customers to the Web—and Web items. To order through text messaging, a shopper simply
customers back to the store? sends a text message to Argos with the catalog number
and store number (available on the back of the catalog or
Argos Website provides a seamless online), and the company responds with a reservation
number. The company offers further mobile shopping
store/Web/catalog experience
through the Vodaphone Live! mobile phone shopping site.
While Argos is not included in the benchmark study,
U.S. Web retailers should take a close look at how this In store, Argos also reinforces its multichannel strategy. It
U.K. merchant has driven multichannel retailing to new has designated Call and Collect locations specifically for
heights. More than 25 percent of the company’s sales are fulfilling direct orders; in other stores it offers QuickPay
made via direct channels, and over 40 percent of direct kiosks where customers can enter catalog numbers of
orders are picked up in store. Once a sleepy brand, Argos items on their shopping lists and pick up their merchandise
is now a retail powerhouse—the United Kingdom’s on-site. If customers have previously placed items on hold
biggest general merchandise retailer, with the top posi- at the store, they can also use these QuickPay kiosks to
tion in toys, watches, furniture, and kitchen appliances. retrieve their orders.

Argos.co.uk offers valuable tools on its site to enable No matter the channel—catalog, store, or Web—Argos
channel integration: a Price & Stock Checker allows cus- continually demonstrates its offers customers a tailor-
tomers to enter catalog item numbers and research avail- made shopping experience. In their search for best prac-
ability and pricing in stores near their postal code. For tices in multichannel retailing, U.S. retailers should take a
each item listed on the site, customers can indicate their look across the pond.

FIGURE 4

Argos.co.uk offers a wide variety of ordering and delivery options
..................................................................................................


OVERVIEW 9

MORE INFORMATION
The Cisco Internet Business Solutions Group (IBSG) is a global consulting team that helps customers transform their organizations by
strategically applying business process innovation and advanced technologies. A unique combination of industry experience and
business and technical knowledge enables IBSG consultants to serve as trusted advisers to many of the world’s top organizations.

For further information about IBSG, visit http://www.cisco.com/go/ibsg

Cisco Systems has more than 200 offices in the following countries and regions. Addresses, phone numbers, and fax numbers are listed on the
Cisco Website at www.cisco.com/go/offices.
Copyright © 2006 Cisco Systems, Inc. All rights reserved. Cisco, Cisco Systems, the Cisco Systems logo, and Cisco Unity are registered trademarks or trademarks of Cisco Systems, Inc.,
and/or its affiliates in the United States and certain other countries.

All other trademarks mentioned in this document or Website are the property of their respective owners. The use of the word partner does not imply a partnership relationship between
Cisco and any other company.

LC/LWI C11-358155-01 0706


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